The digital transformation of Finnish insurance

Finnish insurance celebrates its 200th anniversary this year. The industry emerged from necessity when Finland became autonomous: new insurance policies could no longer be taken out from Sweden, so Finns founded their own fire insurance bureau in Turku.

Is the insurance industry facing another turning point where existing solutions have to be replaced with new ones? Can insurance companies respond to the changing needs of their customers? Will the insurance sector continue to function as a forum in which the risks that are insurmountable to individuals are borne by the insurance collective?

The history of collective risk-sharing extends even beyond the idea of insurances. As a field of business, insurance was born from the need to have a secure foundation for this risk-sharing activity. Insurers started collecting insurance contributions up front and making binding contracts on what damages would be compensated. They operated under strict supervision to make sure these contracts held.

Today, the digital revolution is challenging the ways we make binding contracts. A lot hinges on whether digitalisation can make them more flexible and less costly than the traditional insurance models. The challenge for insurance providers is to adapt to these changes and demonstrate their competence as the risk-sharing experts. From the society’s point of view, the challenge is to make room for progress while keeping potential hazards in check.

Smart objects will change the way we look at our property.

Our risk environment is changing rapidly. Smart objects and the Internet of things will change the way we look at our property. In the future, many kinds of devices will be able to detect their own defects and damages, and can then independently send damage reports and order the necessary repairs. Digitalisation doesn’t make risks disappear, but may change the way we prepare for them. For example, do we need to take out insurance for smart objects, or are they already covered by the manufacturers?

Transportation has been an important segment of the insurance business. This has been intuitive in a world where most cars have been privately owned, but insurers are now preparing for changes brought about by robotic cars. If you don’t need to actually drive the car, does it make sense to own it? A private car can be a costly commodity that merely sits in the parking lot for most of its lifespan. If it becomes a shared commodity instead, the way it is insured should also change. After all, we don’t separately insure each escalator we take, either.

Exponential growth of unstructured information is one feature of the world we now live in. ‘Exponential’ is no hyperbole – it only takes a few years to double the amount of existing data. Many different types of information are already collected on all of us. Sometimes it is done with our consent (My Data) and sometimes without us even being aware of it (Big Data).

All of this information also creates an opportunity to assess risks in a new way. Many companies are racing to find the best ways to utilise the massive amounts of data. New opportunities exist, but so do problems: while it can be easy to draw data-based conclusions, they can just as well turn out wrong. This technology also raises understandable concerns in peoples’ minds. Is it possible to keep personal information hidden, and to what degree?

It is the goal of the insurance sector – and also its challenge – to use the available data with an emphasised sense of responsibility. This way customers who allow the use of their information will genuinely benefit from it in the form of better risk-sharing.

In the course of its 200 years of history, the Finnish insurance business has adapted to changing customer needs several times. One good example of this is the central role insurance has solidified as part of our statutory social security. It is important to make sure that Finnish insurance maintains the ability to keep up with the wildly changing world also in the future.